eBay and Goldman Sachs are two of the big companies reporting earnings this week, and if the traders on Friday's "Options Action " are right, they're heading in opposite directions.
First off, the trade on Goldman . RiskReversal.com's Dan Nathan pointed out that the stock, along with many of the financials, has run up very quickly — or as he put it, "There's a lot of good news in these stocks."
Then there's the technical aspect. Nathan noted that Goldman seemed to be trading in a "double top, " further burnishing his bearish case.
However, because he does not expect the stock to fall sharply off of the earnings event, Nathan suggested making a more nuanced bearish trade.
Specifically, he recommended buying an October/November 115-strike put calendar for $1.40. And that trade must have sounded good to some other folks, too — those October and November 115-strike puts were two of the three most heavily traded GS puts today.
Nathan's trade and breakdown follow.
DAN'S GOLDMAN SACHS TRADE
• SELL 1 OCTOBER 115-STRIKE PUT FOR $0.50
• BUY 1 NOVEMBER 115-STRIKE PUT FOR $1.90
HOW DAN'S GOLDMAN SACHS TRADE MAKES MONEY
• LOSSES ABOVE $113.60 AT NOVEMBER EXPIRATION
• PROFITS BELOW $113.60 AT NOVEMBER EXPIRATION
Let's move on to eBay . Oppenheimer's Carter Worth presented several charts of eBay, and made the case that if history is any guide, earnings are likely to push the stock higher.
On the fundamental side, CRT Capital's Mike Khouw pointed out that the company has enjoyed two consecutive years of double-digit top-line revenue growth.
So with the technical and the fundamentals both pointing to a bullish move off of earnings, Khouw suggested buying the January 50/55 call spread for $1.40. His trade and breakdown:
MIKE'S EBAY TRADE
• BUY JANUARY 50-STRIKE CALL FOR $2.25
• SELL JANUARY 55-STRIKE CALL FOR $0.85
HOW MIKE'S EBAY TRADE MAKES MONEY
• LOSSES BELOW $51.40
• PROFITS ABOVE $51.40
• PROFITS CAPPED AT $55.00
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